The money is coming home, but not to Britain

This may sound like an anthem penned by Baddiel and Skinner, but the money's coming home. It tends to, in a crisis.

In a recession, cash, whether leveraged or not, will always return to its rightful owners. This is the unpalatable reality that our asset markets have had to digest for several months - and those gastric complications explain why so many investment funds and traders have already made it into intensive care. But it also suggests that those "bubbles" complaining only of modest flatulence are unlikely to avoid a similarly harsh diagnosis.

For example, a strong yen is a product of cash going home to Japan. This repatriation, or the so-called "unwinding of the carry trade", is both substantial and all encompassing, but crucially the perception of where the carry trade actually is, is somewhat misplaced.

Of course, since 2002 there has been an awful lot of money finding its way from low yield Japan to high yield markets such as Australia, but a lot has gone to Europe too and that includes the UK.

Japan is among the world's largest international investors, so as Japanese money in European markets gets eroded in currency terms as well as in capital value, it goes home - even to low interest Tokyo bank accounts. The same applies for US funds invested over here - a scenario that exacerbates the misery in European markets. Money is simply going home.

All of which would not be too bad if there was much of it to return here.

But, sadly, there isn't, so instead the UK must increase debt and print money to compensate for the outflow of capital. This intuitively puts more pressure on the pound, and while interest rate cuts can be employed to boost the domestic economy, this can make the currency even less attractive for foreign investors - potentially aggravating the pace of repatriation.

That is why co-ordinated global cuts look more appealing, assuming others can be persuaded to play ball.

Still, all of this means increased pain for markets around the world, as more bubbles go pop. Commodities are experiencing this now: copper has collapsed from record levels; oil has halved in value; and even gold is down 25% from its peak as investors are forced to liquidate positions.

Yet, despite the all encompassing impact of this repatriation process - and no market is immune from deleveraging - there are those who are eternally bullish about certain markets.

Chiefly among them are those who remain confident about the outlook for the UK housing market: while the optimists argue this is no longer as safe as houses, they still say it is likely to come through this crisis relatively unscathed.

According to the Halifax, house prices have declined by only 14% since peaking in August last year. In comparison the Dow has dropped by 35%, the FTSE 100 by 40% and the Nikkei 225 (which is now at early 1980s levels) by 55%. Yet, curiously, the UK stock market sectors which perhaps offer the best insight into how well UK property is really doing - the Homebuilding and Commercial property sectors - are down more than 85% in value on average.

As money continues to find its way back to its rightful owner, it follows there must be a lot more pressure on house prices. Indeed, since a lot of our housing stock is effectively owned by the banks - a sector more anxious than most to get cash in, rather than hand it out - it hardly faces a unique challenge.

Meanwhile, just as the top of the market is always marked by people proclaiming new paradigms, the middle of any slump typically features arguments about how cheap assets have become. Lines such as: "surely it can't get worse than this?" are invariably signals that we are only half way down, and we are certainly hearing those proclamations of imminent value now.

But if the optimism proves misplaced, do not expect any valuation-biased expert to lose sleep over it, no matter how much of your money has been lost.

It is a City truism that nobody ever admits to buying anything at the wrong price, but the reality is that investors can invariably end up buying things at the wrong time.